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The DOJ and SEC Speak, Hypothetically, About the FCPA

Today, the Justice Department and Securities and Exchange Commission released the long anticipated guidance on the FCPA. As declared by the DOJ and SEC, the 120-page long document entitled, “A Resource Guide to the U.S. Foreign Corrupt Practices Act,” is an “unprecedented undertaking.” The Guide comes on the eve of American Conference Institute’s National Conference on the FCPA (“ACI FCPA Conference”) in Washington, D.C., just over one year after Assistant Attorney General Lanny Breuer promised it at last year’s conference.

While the guidance is impressively detailed in many respects, I am most drawn to what the DOJ and SEC say through the Guide’s detailed hypotheticals and anonymized examples of real-life cases. In particular:

The gifts, travel, and entertainment hypotheticals offer some specific and useful guidance regarding where the government draws the line between legitimate and improper hospitality. For example, when facilitating a several day-long inspection under a contract with a foreign government, a company can pay for business class airfare, a moderately priced dinner, a baseball game, and a play for the officials performing the inspection, but cannot pay for the officials to travel first-class with their spouses for a side trip to Las Vegas. This section of the Guide is the most practical in terms of the FCPA issues faced by companies on a regular basis.

The facilitating payments hypothetical offers an interpretation of the facilitating payments clause that is narrower than in years past. At the ACI FCPA Conference four years ago, Mark Mendelsohn, then Deputy Chief of the Fraud Section of DOJ, stated that despite the statute’s language allowing “expediting payments,” a company that paid a teller to get an application processed more quickly would violate the FCPA because the “routine government action” contemplated under the facilitating payments exception includes a “routine timetable.” In the Guide’s facilitating payments hypothetical, the DOJ backs off of that interpretation and states that a one-time, small payment to get a permit application stamped and filed would qualify as a facilitating payment even though the payment provided a speedier than normal processing time.

The DOJ and SEC offered “insight into the process” of how often and why they declined to prosecute public and private companies in the past. Regarding frequency, the DOJ claims it has declined several dozen cases against companies in the past two years alone. As for the reasons, the DOJ and SEC offered six “recent, anonymized examples.” The six examples all tell similar stories of dutiful corporate citizens with well-functioning internal controls that discovered improper payments (usually small ones), disclosed them, and took swift and complete remediation measures. These cases do not shed light on the more run-of-the-mill FPCA cases, and thus provide little valuable insight.

The government’s pronouncement, even if in hypothetical, is a useful resource.

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